A hospital management company acquired a 150-bed general hospital in a medium-sized city in the southeastern United States. Although the company had little knowledge of the local market when it acquired the facility, its intention was to continue to run the facility as a general hospital. However, the hospital had not been profitable in offering general care, and it faced competition from three large facilities that had access to almost unlimited resources. For these reasons, the new managers performed a situational analysis to determine the most appropriate strategy.

The managers commissioned a study of the immediate market area—the five-mile radius surrounding the hospital. This market area was examined in the context of overall trends for the metropolitan area. The analysts reviewed demographic trends to determine the future size and composition of the population as well as trends in service utilization. This information was used to develop projections of the future demand for health services in the urban area and in the immediate market area. Particular attention was paid to the hospital’s competitors, to determine the services offered by other facilities, the existing market shares for those services, and the nature of existing managed care contracts and other negotiated relationships.

The analysis determined that the immediate service area was not likely to support a general hospital. The payer mix was not favorable, and other facilities controlled significant portions of the local market. Further, most area employers were tied to the provider networks of the two dominant health systems in the community. The hospital did not have a large or strong medical staff. Given the existing provider networks involving competing hospitals, attracting additional physicians to the facility would have been difficult. Conceding that it could not operate effectively as a general community hospital and that confronting large, established competitors head-on was not practical, the managers considered other strategies. After analyzing the data, the managers decided that a niche strategy was appropriate for the hospital. It would identify niche services, and the corporate focus would be on exploiting those niches. 

Questions

1. What factors raised concerns among the hospital’s managers about the viability of the facility as a general community hospital, and how did the market analysis validate those concerns?

2. What steps were taken to determine the most appropriate focus for the hospital’s services?

3. Which strategic approach did the managers choose, and to what types of services did it direct them?